Business

Over 60s lose out in mortgage cut

Image caption Welfare cuts are hitting mortgage help

People over 60 will be the biggest losers in changes to the way low income households are helped with mortgage costs, the BBC has established.

From 1 October the rate of mortgage interest paid for low income households is cut from 6.08% to 3.63%.

The average payment of just over £200 a month will drop by around £80.

A housing charity predicted a rise in repossessions. But the Department for Work and Pensions said the change struck the right balance and was fair.

Limited savings

The cut is one of the first announced in the emergency Budget in June to come into effect. Officially it will only save £15 million this year.

But the Department for Work and Pensions confirmed that the cost of the scheme was £570 million in 2009/10. The 40% cut in the interest paid would save more than £200 million in a full year.

Roger Harding, head of Policy at housing charity Shelter, told Money Box on Radio 4: "We are going to see a 40% drop in the payments people are getting.

"For someone on a mortgage of £150,000 they would have got £760 under the current system. Once the changes kick in that will drop to £456 a month that is a shortfall on their previous amount of £304 a month."

"Sadly we will expect arrears to increase and some will be repossessed."

Eligible claimants

Figures published by the Department indicate that more than half of those who get their mortgage interest paid are receiving pension credit - a means tested benefit for the over 60s.

About a third are lone parents or disabled people on income support, and just one in six is unemployed and receiving job seeker's allowance.

Mortgage interest is paid for 227,000 low income households. The rate used to be pegged at 1.58% above the Bank of England base rate. But when that plunged to 0.5% the last Government decided to keep the rate where it was at 6.08%.

That concession was due to end on 31 December 2010. But the new Government decided to bring that date forward and peg it to the average mortgage interest as assessed by the Bank of England.

That rate is currently 3.63% and will change if the average moves by more than 0.5 percentage points.

BBC Radio 4's Money Box is broadcast on Saturdays at 1200 BST, and repeated on Sundays at 2100 BST.

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